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Technological Factors in your PESTEL Analysis

Part 5 of 7

Introduction

Technology is the “T” in PESTEL. Technological factors have a critical macroeconomic influence on a business’s operations, its products, how it delivers its services, and even its markets.

Technological Factors in your PESTEL Analysis

Technology encompasses innovation, automation, obsolescence, and R&D – and not just yours: it includes how competitors use technologies and, very importantly, how your market embraces and accepts technological change.

According to Jake (a technology tutor on testquestions.org), technological factors can influence the decisions you make when considering entering a new market and launching a new product or service. Indeed, technology has placed market research within reach of even the smallest businesses. It is critically important that you monitor technological factors no matter what business you are in and be prepared to respond quickly to changes.

What Are Technological Factors?

The table below lists just some of the topics that you might want to consider when evaluating technological factors:

  • Innovation in your industry
  • Impact of the Internet on your business
  • Research & Development
  • Communication infrastructure
  • Investment and your budget
  • Know your customer (KYC)

Using AI for Your PESTEL Analysis

This article was initially published in 2019, not before AI but well before artificial intelligence became the hottest topic to discuss and use in the tech sector. In updating this article in Q4 2023, we couldn’t ignore the importance of AI in developing an informed PESTEL analysis. We asked ChatGPT how AI could be used in a PESTEL analysis, and here was its response:

While PESTEL analysis is traditionally conducted by gathering data and analyzing it manually, AI technologies can enhance the process by automating data collection, analysis, and interpretation. Here’s how you can use AI in a PESTEL analysis:
1. Automated Data Collection:

  • Web Scraping: AI algorithms can be programmed to scrape data from various online sources such as news websites, government publications, and social media platforms to collect relevant information related to political, economic, social, technological, environmental, and legal factors.
  • Natural Language Processing (NLP): NLP algorithms can process large volumes of textual data to extract valuable insights related to each PESTEL factor. AI-powered tools can identify trends, opinions, and sentiments from textual data sources.

2. Data Analysis and Pattern Recognition:

  • Machine Learning Algorithms: Utilize machine learning algorithms to identify patterns and correlations within the collected data. For example, machine learning algorithms can identify economic indicators or political events that correlate with specific market trends.
  • Predictive Analytics: AI models can predict future scenarios based on historical data, helping businesses anticipate potential changes in the macro-environmental factors.

3. Sentiment Analysis:

  • Sentiment Analysis Tools: AI-driven sentiment analysis tools can evaluate public sentiment regarding political decisions, social issues, or economic policies. Understanding public sentiment is crucial for assessing potential opportunities and threats.

4. Scenario Planning:

  • Simulation and Modeling: AI can be used to create simulation models based on different combinations of PESTEL factors. These simulations can help in understanding various scenarios and their impact on the organization.

5. Data Visualization:

  • Interactive Dashboards: AI-powered tools can create interactive dashboards and visualizations that represent PESTEL data in an easy-to-understand format. Visualization tools can help identify trends and outliers, making it easier for decision-makers to comprehend the analysis results.

6. Expert Systems and Knowledge Bases:

  • Expert Systems: AI-driven expert systems can provide in-depth analysis and insights by utilizing vast knowledge bases. These systems can answer complex questions related to specific PESTEL factors.
  • Knowledge Graphs: Utilize AI algorithms to create knowledge graphs that represent relationships between different PESTEL factors, helping in understanding the interconnections and dependencies among these factors.

7. Continuous Monitoring and Alerts:

  • Real-time Monitoring: Implement AI systems that continuously monitor relevant data sources in real-time. Any significant changes or events related to PESTEL factors can trigger alerts, enabling businesses to respond promptly to emerging threats or opportunities.

By integrating AI technologies into the PESTEL analysis process, organizations can gain deeper insights, make more informed decisions, and respond proactively to changes in the external environment.

Examples of the Impact of Technological Factors

  • Recently, we worked with a client in East Africa who is a designer, manufacturer, and retailer of workplace fashions with an African theme. The client needed our help to assess how to reach an untapped market of potential US, UK, and European customers who closely identify with their African roots. Should the client open stores in New York, London, and Paris? A PESTEL analysis that we prepared suggested that utilizing the technology available to launch an e-commerce website was the most cost-effective way to enter these markets and, in doing so, measure market acceptance.
  • An IT support firm with hundreds of individual and small business customers wished to increase its efficiency while at the same time providing better customer service. For example, each time they assisted a client, they had to send an invoice and charge the invoiced amount on the client’s credit card. The problem was that they had to ask for the credit card number each time they created an invoice. Customers could not understand why they couldn’t keep each client’s card number on file. After all, it works for Amazon and American Airlines. The problem was that their merchant processor did not allow them to keep cards on file. They solved their problem by moving to a new merchant processor that required them to install software that protected customer information such as credit cards and other sensitive business information.
  • We know of a company that badly needed to increase its staff to keep up with the continuously rising demand for its products. By investing in new enterprise software (time tracking) combined with enhanced mobile communications, they could increase staffing by hiring highly qualified people who preferred to work at home or were located across the country or the globe. To better understand the benefits of remote working and how technology makes this possible, we suggest you read “Remote” by Jason Fried and David Heinemeier Hansson.
  • A client recently asked us to assist with a benchmarking exercise that would enable him to compare the operating expenses (as a percentage of revenue) of a hospital business in the U.S., Saudi Arabia, and the UAE. AI will enable us to reduce the time required to complete the exercise dramatically.

The four situations described above represent how technology helped solve a business problem. However, it is essential to remember that nothing happens in a vacuum. Business is complicated, and therefore, when you think that just one idea or solution can solve a problem, it is a good idea to run the problem and the solution through a PESTEL analysis to see if the solution creates new problems or if better solutions present themselves.

This is Part 5 of our series on PESTEL analyses. Go to Part 4 here. Our next post in this series will be on the Environmental factors to be considered in a PESTEL analysis.

Other Articles in the PESTEL Analysis Series

Jimmy's background includes over 40 years in international, commercial, and investment banking, and nearly a decade as the principal shareholder and CEO of a rapidly growing manufacturing and distribution business in California. Today, Jimmy spends his time advising and consulting with entrepreneurs on matters related to business planning, as well as capital markets and funding strategies. Jimmy works with clients throughout the world in industries that include financial services, real estate, manufacturing and hospitality. View details.

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